TSX closes near two-week low, hurt by oil, banks

TORONTO (Reuters) - Canadian stocks dropped sharply on Thursday as investors pared back expectations the U.S. Federal Reserve will signal a new round of economic stimulus, brushing off surprisingly robust earnings from three of the country's big banks.

All ten of the benchmark index's main sectors were lower ahead of the much anticipated speech by Fed Chairman Ben Bernanke at a meeting of central bankers in Jackson Hole, Wyoming on Friday.

"The market is expecting that we won't necessarily get anything definitive tomorrow out of Jackson Hole, or if we do, that it's already reflected in equity valuation levels," said Paul Taylor, the chief investment officer of fundamental equities at BMO Asset Management.

The Toronto Stock Exchange's S&P/TSX composite index <.gsptse> closed down 123.14 points, or 1.03 percent, to 11,886.65. It was the biggest one-day fall for the index since early July.

The index at one point hit 11,875.05, its weakest level since August 15.

Limp data on the U.S. labor market coupled with signs that consumer spending remains steady added to the pessimism as it neither pointed to a robust recovery nor a bleak environment in which the Fed would be forced to act.

"In some ways you hope that economic data is weak enough that it forces the Fed's hand. The risk is that it's a little bit better than awful and therefore the Fed is not compelled to intervene," Taylor said.

ENERGY LEADS DECLINE

Toronto stocks were led lower by a 1.5 percent decline in energy shares that followed a drop in U.S. crude prices. U.S. crude fell as oil companies assessed damage after Hurricane Isaac's trek through the region.

Financial stocks were among the biggest weights even though three big Canadian banks reported better-than-expected results and dividend increases on Thursday.

The sector had enjoyed a two-day rally after Bank of Nova Scotia and Bank of Montreal upped their dividends and beat profit estimates earlier in the week.

However, Bank of Nova Scotia fell 2.4 percent to C$52.30 after it said late on Wednesday it would buy ING Groep's Canadian online bank for C$3.1 billion.

Toronto-Dominion Bank

was down 1.1 percent at C$80.65 on Thursday even though it narrowly beat expectations for quarterly profit and raised its dividend by more than expected.

Canadian Imperial Bank of Commerce dropped 1.4 percent to C$75.35 even as it said profit rose 42 percent on higher lending volumes.

But Royal Bank of Canada , the country's largest lender, bucked the trend, rising 0.66 percent to C$54.96 after it announced a surprise hike in its dividend on the back of a 73 percent rise in profit.

"On the whole, the core Canadian banking franchises are still relatively stable and intact," said Gareth Watson, vice-president for investment management and research at Richardson GMP.

"Credit quality is not deteriorating too quickly, although in this environment it's not improving too markedly either," he said.

Analysts said investors were also looking ahead to a European Central Bank meeting next week at which President Mario Draghi is expected to flesh out his plans to buy euro bonds. His hints at such a move in August was credited with helping steady global markets.

"Europe is the problem, and that's where we need some solutions for other places around the world to feel more comfortable," Watson said.

(Editing by Jeffrey Hodgson)

Source: http://news.yahoo.com/tsx-may-open-lower-banks-focus-122733303--finance.html

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